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The Nevada Gaming Control Board (“NGCB”) has recently awarded International Game Technology ( IGT - Analyst Report ) the license to manufacture and provide online interactive games. Bally Technologies Inc. ( BYI - Snapshot Report ) is the other company who was granted a license by the same board. However, the Nevada Gaming Commission is to make the final decision regarding the matter on June 21.
Upon getting the nod, IGT will be able to bring its online portfolio of interactive games to the Nevada casinos. IGT has made accretive acquisitions to enhance its online offerings in the interactive gaming category, which include Stockholm-based Entraction Holding AB for a cash consideration of approximately $115.0 million.
Entraction offers complete software systems for online gaming and operates one of the largest open poker networks in the world. The acquisition of Entraction is expected to boost IGT’s position in the legalized interactive gaming market., The addition of poker, bingo, casino and sports betting will also boost IGT’s interactive gaming portfolio going forward.
Moreover, the Double Down acquisition will expand IGT’s portfolio in blackjack games, slots, slot tournaments, video poker and roulette.
We believe that IGT is successfully penetrating the online and social casino gaming market through the acquisitions, such as Double Down and Entraction Holding AB. These acquisitions have significantly boosted its interactive gaming portfolio. In the recently concluded quarter, Gaming Operations revenues increased 11.3% year over year to $300.4 million in the second quarter, primarily attributed to strong performance from the interactive business and a higher installed base.
Moreover, with IGT Cloud services, we expect the company to gain traction in the casino gaming industry, as it would likely be well accepted by new casino properties, thereby improving the company’s top line going forward.
However, IGT is bearing the brunt of a sluggish domestic market due to lower play levels, a higher unemployment rate and weak replacement sales. Therefore, the company is seeking expansion opportunities in international territories to boost profitability. We believe that IGT will continue to focus on expanding its presence in international markets and will benefit from its licensing agreements over the long term.
We have a Neutral recommendation on the stock over the long term (6-12 months). Currently, IGT has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
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